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A    Reprint   of  Economic   Tracts 

Edited  by 

JACOB  H.  HOLLANDER,  Ph.D. 

Associate  Professor  of   Political  Economy 
Johns  Hopkins  University 


David    Ricardo 

'  on 

The  Price  of  Gold 

1809 


CorvKK.ii  I  i:ii  1!MK'.,  i:v 
TIM".  .lOllXS  IIOI'KINS  I'KKSS 


StH-oiid  impression;  i-e|irinted  liy  the  Plauograph  Method,  December,  1934. 
Prixtei>  in  I'mted  States  of  America 


2  O^S'J/    '/7 37 


INTRODUCTION 

The  three  letters  on  '  The  Price  of  Gold,'  here  for  the  first 
time  reprinted  from  their  original  form  in  The  Morning  Chronicle 
(London)  of  August-November,  1809,  may  be  said  to  mark  the 
beginning  of  David  Ricardo's  career  as  an  economist  and  pub- 
licist. The  circumstances  under  which  they  were  written  and 
published  are  described  in  the  memoir  of  Ricardo  contained  in 
the  "  Annual  Biography  and  Obituary  for  1824  "  (London,  1824) :' 

"  The  immense  transactions  which  he  [Ricardo]  had  with 
the  Bank  of  England,  in  the  course  of  business,  tallying 
with  the  train  of  study  on  which  he  was  then  engaged, 
led  Mr.  Ricardo  to  reflect  upon  the  subject  of  the  cur- 
rency, to  endeavour  to  account  for  the  difference  which 
existed  between  the  value  of  the  coin  and  the  Bank  notes, 
and  to  ascertain  from  what  cause  the  depreciation  of  the 
latter  arose.  This  occupied  much  of  his  attention  at  the 
time,  and  it  formed  a  frequent  theme  of  conversation 
with  those  among  his  acquaintance  who  were  inclined 
to  enter  upon  it.  He  was  induced  to  put  his  thoughts 
upon  paper,  without  the  remotest  view  of  the  time  to 
publication. 

The  late  Mr.  Perry,  proprietor  of  the  Morning  Chron- 
icle, was  one  of  the  few  friends  to  whom  Mr.  Ricardo 
showed  his  manuscript.  Mr.  Perry  urged  him  to  allow 
it  to  be  published  in  the  Morning  Chronicle;  to  which, 
not  without  some  reluctance,  Mr.  Ricardo  consented;  and 
it  was  inserted  in  the  shape  of  letters  under  the  signa- 
ture of  R.,  the  first  of  which  appeared  on  the  6th  day 
of  September,  1810.  These  letters  prodiiced  various 
answers ;  among  the  rest  was  one  signed  by  "  A  Friend 
to  Bank  Notes,  &c.,"  whom  Mr.  Ricardo  soon  after  found 
to  be  an  intelligent  friend  of  his  own;  and  who,  from 
being  a  warm  opponent  of  the  doctrines  of  Mr.  Ricardo, 
was  soon  transformed  into  a  complete  convert  to  them. 

The  interest  which  the  subject  excited  was  a  motive 
with  him  for  enlarging  upon  it,  and  publishing  his  views 
very  shortly  after,  in  the  form  of  a  pamphlet,  entitled 
"  On  the  Depreciation  of  the  Currency."  " 

The  foregoing  account  was  largely  drawn  upon  by  McCulloch 
in  the  preparation  of  the  "  Life  and  Writings  of  Mr  Ricardo," 
prefixed  to  his  edition  of  "  The  Works  of  David  Ricardo  "  (Lon- 
don, 1846),  and  reprinted  on  several  occasions  thereafter.     Even 

•This  sketch  of  Ricardo,  McCulloch  tells  us  ("The  Works  of 
David  Ricardo,"  xvii),  is  "supposed  to  be  written  by  one  of  his 
brothers."  The  only  intimation  of  authorship  afforded  by  the 
work  itself  is  the  prefatory  statement  of  its  editor  that  the  biog- 
raphies of  Ricardo  and  of  certain  others  are  "  from  much  more 
able  pens  than  his  own." 


267417 


4  Introduction 

certain  inaccuracies  were  incorporated.  Thus  the  date  of  publi- 
cation of  the  first  letter  was  given  by  McCulloch  as  Septem- 
ber 6,  1809 — a  palpable  revision  of  the  corresponding  "  Annual 
Obituary"  date,  September  6,  1810;  whereas  bare  reference  to 
the  Chronicle  file  would  have  supplied  the  correct  issue,  viz., 
August  29,  1809.  Here,  as  elsewhere,  McCulloch  was  neither  an 
accurate  nor  a  scrupulous  editor,  and  it  is  doubtful  whether  he 
ever  saw  the  letters  in  their  original  printed  form,  and  almost 
certain  that  he  did  not  use  them  in  preparing  the  account  of 
Ricardo's  life  or  in  editing  his  works.  McCuUoch's  interest  cen- 
tred in  Ricardo's  pamphlet  on  "  The  High  Price  of  Bullion,  a  Proof 
of  the  Depreciation  of  Bank  Notes"  (London,  1810).  It  was 
not  until  many  years  later  when  casting  about  for  biographi- 
cal material  that  his  attention  necessarily  reverted  to  the 
Chronicle  letters,  and  then  his  moderate  requirements,  literary 
and  critical,  were  amply  satisfied  by  the  statements  in  the 
"  Annual  Obituary  "  memoir. 

An  important  consequence  of  McCulloch's  editorial  neglect  has 
been  a  general  acquiescence  in  the  view  that  the  Chronicle  letters 
were  planned  and  published  in  serial  form,  and  that  the  pamphlet 
on  the  '  High  Price  of  Bullion '  was  not  merely  a  free  version 
but  an  essential  reproduction  of  the  statements  therein  contained. 
This  is  the  impression  left  by  the  "Annual  Obituary"  memoir; 
it  takes  more  definite  form  in  McCulloch's  biographical  sketch, 
while  in  other  of  McCulloch's  writings  it  is  stated  in  the  terms 
which  frequent  citation  has  rendered  familiar  to  all  students  of 
Ricardo.  Thus  in  McCulloch's  "  Literature  of  Political  Economy  " 
(London,  1845),  Ricardo's  "High  Price  of  Bullion"  bears  the 
following  annotation   (pp.  172-173): 

"  Among  those  whose  attention  was  directed  by  these 
circumstances  to  the  state  of  the  currency,  the  most  able 
and  conspicuous  was  Mr.  Ricardo,  who  then  made  his 
d^hut  as  an  author,  by  publishing  a  series  of  letters  on 
the  subject  in  the  Morning  Chronicle,  the  first  of  which 
appeared  on  the  6th  of  September,  1809.  Having  subse- 
quently collected  the  Letters,  and  given  them  a  more  sys- 
tematic form,  Mr.  Ricardo  published  them  in  a  pamphlet, 
which  appeared  early  next  year,  entitled  '  The  High  Price 
of  Bullion  a  Proof  of  the  Depreciation  of  Bank-Notes.'  " ' 

An  examination  of  the  letters  here  made  accessible  will  correct 
the   somewhat    misleading    impression    of    McCulloch's    phrases. 

'  A  correct  impression  of  the  relation  of  the  Chronicle  letters 
to  the  "  High  Price  of  Bullion,"  as  conceived  by  Ricardo  himself, 
can  be  best  obtained  from  the  "  Introduction  "  to  the  tract.  This 
appeared  in  the  early  editions  of  the  pamphlet,  but  was  omitted 
from  the  fourth — the  one  included  by  McCulloch  in  his  edition 
of  the  "Works."  It  is  accordingly  here  appended  (v.  note  1, 
p.  27). 


Introduction  5 

The  series,  it  will  be  seen,  is  properly  described  as  consisting  of 
one  communication  and  two  controversial  letters.  In  the  summer 
of  1809,  probably  under  the  circumstances  indicated  in  the  "  An- 
nual Obituary "  memoir,  Ricardo  was  induced  to  make  public 
certain  views  on  the  Bank  Restriction.  His  contribution  appeared 
in  The  Morning  Chronicle  of  August  29,  as  a  brief  paper  or  essay, 
without  signature,  under  the  caption  '  The  Price  of  Gold ' — ^a 
definite  communication  with  no  intimation  of  sequel. 

The  essay  was,  however,  sharply  assailed,  among  other  less 
serious  critics,  by  one  writer  under  the  pseudonym  "  A  Friend  to 
Bank  Notes  but  no  Bank  Director,"  whose  substantial  manner 
and  unconvincing  argument  invited  reply.  Accordingly,  on  Sep- 
tember 20,  appeared  the  second  of  the  three  letters  here  pre- 
sented, formally  addressed  "  To  the  Editor  of  the  Morning  Chron- 
icle," and  bearing  the  signature  "  R."  Further  discussion  re- 
sulted, including  a  second  letter  from  "  A  Friend  to  Bank  Notes 
but  no  Bank  Director,"  if  anything  more  vigorous  in  tone  and 
more  vulnerable  in  content  than  the  first.  An  effective  rejoinder 
by  Ricardo,  the  last  of  the  three  letters  noW  reprinted,  appeared 
in  the  Chronicle  of  November  23,  evidently  marking  the  exhaus- 
tion of  editorial  patience,  for  with  it  the  controversy  terminated, 
so  far  at  least  as  the  columns  of  the  newspaper  were  concerned. 

The  publication  of  the  correspondence  of  Ricardo  with  Hutches 
Trower  and  the  examination  of  the  Trower  MSS.  in  1899  have 
made  it  certain  that  "  A  Friend  to  Bank  Notes  but  no 
Bank  Director  "  of  the  Chronicle  controversy  was  Hutches  Trower 
himself.  The  Trower  MSS.  contain  rough  copies  of  Trower's 
two  published  letters  as  well  as  drafts  of  a  third  and  a  fourth 
letter  never  published,  together  with  Ricardo's  critical  memo- 
randa upon  the  latter.^  The  two  men  seem  to  have  been  well 
acquainted  prior  to  the  controversy.  But  the  revelation  of 
authorship  was  doubtless  a  mutual  surprise,  and  thereafter  their 
relation  took  on  both  a  wider  range  and  a  stronger  quality  that 
developed  uninterruptedly  until  Ricardo's  death  in  1823. 

To  the  text  of  the  letters  here  reprinted  have  been  appended  a 
few  necessary  annotations,  including  brief  summaries  of  the  other 
contributions  to  the  Chronicle  discussion.  The  inviting  task  of 
correlating  the  letters  with  the  '  High  Price  of  Bullion '  tract 
and  with  Ricardo's  monetary  theories  in  general,  can  properly 
be  left  to  the  student  of  the  Ricardian  economics  for  whose 
greater  convenience  this  edition  is  primarily  designed. 

Baltimobe,  December,  1902. 

'  Cf.  "  Letters  of  David  Ricardo  to  Hutches  Trower  and  others, 
1811-1823"  (ed.  Bonar  and  Hollander.  Oxford:  1899),  vi-vii  and 
Appendix. 


Three  Letters 


on 


The  Price  of  Gold 

Contributed  to 

The  Morning  Chronicle  (London) 

in 

August-November,  1809 

by 
David    Ricardo 


BALTIMORE 

THE  JOHNS  HOPKINS  PRESS 

1903 


I 

IThe  Morning  Chronicle,  August  29,  1809] 
THE  PRICE  OF  GOLD. 


The  present  high  market  price  above  the  mint  price  of  gold, 
appears  to  have  engrossed  a  great  portion  of  the  attention  of 
the  public;  but  they  do  not  seem  to  be  sufficiently  impressed 
with  the  importance  of  the  subject,  nor  of  the  disastrous  con- 
sequences which  may  attend  the  further  depreciation  of 
paper.  I  am  anxious,  whilst  there  is  yet  time,  that  we  should 
retrace  our  steps  and  restore  the  currency  to  that  healthful 
state  which  so  long  existed  in  this  country,  and  the  departure 
from  which  is  pregnant  with  present  evil  and  future  ruin. 

The  mint  price  of  gold  is  31.  17s.  lO^d.  and  the  market 
price  has  been  gradually  increasing,  and  was  within  these  two 
or  three  weeks  as  high  as  41.  13s.  per  ounce,  not  much  less 
than  20  per  cent,  advance. 

It  is  remarkable  that  between  the  years  1777  and  1797  the 
average  price  of  gold  was  not  higher  than  31.  17s.  7d.  During 
that  period,  our  currency  was  one  of  acknowledged  purity.  It 
is  only  since  1797,  since  the  year  that  the  Bank  has  been 
restricted  from  paying  its  notes  in  specie,  that  gold  has  risen 
to  41.,  41,  lOs.,  and  latterly  to  41.  13s.  per  ounce.  Whilst  the 
Bank  pays  its  notes  in  specie,  there  can  never  be  any  great 
difference  between  the  mint  and  market-prices  of  gold.  It  is 
well  known  that,  detection  being  diflficult,  notwithstanding 
the  most  severe,  and,  perhaps,  absurd  laws,  when  it  becomes 
greatly  the  interest  of  individuals  from  a  high  market  price  of 
gold,  the  coin  will  be  melted  and  sold  as  bullion,  or  exported, 
as  it  best  suits  the  views  of  those  who  engage  in  such  traffic. 
If,  then,  whilst  the  Bank  paid  in  specie  gold  rose  to  41.  or  more 
per  ounce,  these  dealers  would  exchange  their  notes  at  the 


10  David  Ricahdo 

Bank,  obtaining  an  ounce  of  gold  for  every  31.  17s.  lO^d.  in 
bank  notes.  This  gold  would  be  melted  and  sold,  or  exported 
for  41.  or  more  in  bank-notes  per  oimce ;  and  as  this  operation 
might  be  repeated  daily,  or  indeed  hourly,  it  would  be  con- 
tinued till  the  Bank  had  withdrawn  the  superfluous  quantity 
of  their  notes  from  circulation,  and  had  thereby  brought  the 
market  and  mint  prices  of  gold  to  a  level.  This  is  the  only 
check  which  can  exist  to  an  over  issue  from  the  Bank,  and  was 
80  well  known  that  the  Bank  never  ventured  on  it  with  im- 
punity. 

No  efforts  of  the  Bank  could  keep  more  than  a  certain 
quantity  of  notes  in  circulation,  and  if  that  quantity  was 
exceeded,  its  effects  on  the  price  of  gold  always  brought  the 
excess  back  to  the  Bank  for  specie.  Under  such  regulations 
the  market  price  of  gold  could  never  rise  much  above  the 
mint  price,  for  who  would  give  41.  or  more,  in  bank-notes,  for 
an  ounce  of  gold,  when  he  might  obtain  the  same  at  the  Bank 
for  31.  17s.  lO^d.  It  would  be  the  same  thing  as  offering 
an  ounce  of  gold  and  2s.  1^  d.  for  an  ounce  of  gold. — When 
we  talk  of  a  high  price  of  gold,  it  can  have  no  meaning,  if  esti- 
mated in  gold,  or  in  notes  which  are  immediately  exchange- 
able for  gold.  It  may  be  high,  estimated  in  silver,  or  in 
goods  of  all  kinds,  and  it  is  only  when  gold  is  high  compared 
with  goods,  or  in  other  words  that  goods  are  cheap,  that  any 
temptation  is  offered  for  its  importation.  When  it  is  said 
that  we  may  obtain  11.  5s.  for  a  guinea  by  sending  it  to  Ham- 
burg, what  is  meant  but  that  we  may  get  for  it  a  bill  on 
London  for  11.  5s.  in  bank-notes?  Could  this  be  the  case  if 
the  bank  paid  in  specie?  Would  any  one  be  so  blind  to  his 
interest  as  to  offer  me  one  guinea  in  specie  and  four  shillings, 
for  a  guinea,  when  he  might  obtain  the  same  at  Hamburgh  at 
par,  paying  only  the  expences  of  freight,  &c.  ?  It  is  only 
because  he  cannot  get  a  guinea  at  the  Bank  for  notes,  that  he 
consents  to  pay  it  with  notes  at  the  best  price  he  can,  or  in 
other  words  he  sells  11.  58.  of  his  bank-notes  for  a  guinea  in 
specie. 

When  the  Act  restricting  the  Bank  from  paying  in  specie 


The  Pbice  of  Gold  11 

took  place,  all  checks  to  the  over  issue  of  notes  were  removed, 
excepting  that  which  the  Bank  voluntarily  placed  on  itself, 
knowing  that  if  they  were  not  guided  by  moderation,  the 
effects  which  would  follow  would  be  so  notoriously  imputable 
to  their  monopoly,  that  the  Legislature  would  be  obliged  to 
repeal  the  Restriction  Act. 

Whilst  the  Bank  is  willing  to  lend,  borrowers  will  always 
exist,  so  that  there  can  be  no  limit  to  their  over-issues,  but  that 
which  I  have  just  mentioned,  and  gold  might  rise  to  81.  or  101. 
or  any  other  sum  per  ounce. — The  same  effect  would  be  pro- 
duced in  the  price  of  provisions  and  on  all  other  commodities, 
and  there  would  be  no  other  remedy  for  the  depreciation  of 
paper,  than  the  Bank  withdrawing  the  superabundant  quan- 
tity from  circulation,  by  insisting  on  the  merchants  paying 
their  bills  as  they  became  due,  and  refusing  to  renew  their 
loans  until  the  scarcity  of  circulating  medium  should  so  raise 
its  value  that  it  would  be  at  par  with  gold.  It  could  rise  but 
little  above  that  price,  for  from  that  moment  importation  of 
gold  would  commence,  and  if  the  Bank  were  gradually  to  with- 
draw all  their  notes  from  circulation,  the  place  of  those  notes 
would  as  gradually  be  supplied  by  imported  gold,  which  the 
high  price — I  mean  the  high  price  in  goods,  would  infallibly 
draw  to  this  coimtry. 

If  my  view  of  this  subject  has  been  correct,  we  are  enabled 
to  ascertain  the  amount  of  depreciation  at  which  Bank  notes 
at  any  time  may  be,  and  when  gold  was  at  41.  13s.  per  ounce, 
they  appear  to  have  arrived  at  the  enormous  discount  of  20 
per  Cent.  I  may  be  asked  if  Bank  notes  are  at  so  great  a 
discount,  how  comes  it  that  no  shopkeeper  will  sell  more 
goods  for  twenty  guineas  than  for  211.  in  Bank  notes.  For 
this  I  can  only  account  by  supposing  that  the  trade  of  pur- 
chasing guineas  at  a  premium,  or  in  other  words  selling  Bank 
notes  at  a  discount,  is  one  which  would  expose  the  man  who 
openly  imdertook  it  to  so  much  obloquy  and  suspicion,  that 
notwithstanding  the  profit,  no  one  is  hardy  enough  to  encoim- 
ter  the  risk,  particularly  as  the  law  is  very  severe  against 
melting  the  coin  or  exporting  it.     But  that  it  is  practised 


12  David  Ricabdo 

secretly  there  can  be  no  doubt,  as  the  profit  attending  it  is 
enormous,  and  the  number  of  guineas  in  circulation,  consid- 
ering that  nearly  60  millions  have  been  coined  in  the  present 
reign,  is  diminished  to  a  very  small  amount. 

It  is  sufficient  for  my  argument  if  I  prove  that  it  is  a  trade 
which  can  advantageously  be  carried  on — that  if  tradesmen 
could  openly  and  readily  sell  guineas  for  twenty-three  shillings 
each,  or  more  in  Bank  notes,  they  could  afford  to  sell  their 
goods  cheaper  for  gold  than  for  Bank  notes; — and  it  is  suffi- 
ciently evident  that  buying  guineas  at  twenty-three  shillings 
is  between  9  and  10  per  cent,  premium,  and  selling  gold  at 
41.  13s.  or  nearly  30  per  cent,  premium,  is  a  trade  much  more 
advantageous  than  many  carried  on  in  the  city  of  London. 

If  further  proofs  of  the  depreciation  of  Bank  notes  were 
wanting,  and  that  it  was  caused  by  an  over-issue,  it  would  be 
found  in  the  present  rate  of  exchange  with  foreign  countries. 
To  make  this  apparent  may  require  us  to  consider  what  is 
meant  by  the  rate  of  exchange,  and  the  rules  and  limits  to 
which  it  is  subject. 

If  I  purchase  from  a  resident  in  Holland  goods  of  that 
country,  the  bargain  is  made  in  the  money  there  current.  I 
have  consequently  contracted  to  pay  him  a  certain  number 
of  ounces  of  silver  of  a  given  purity.  As  the  comparative 
value  of  silver  and  gold  is  nearly  equal  all  over  the  world,  my 
debt  may  be  either  estimated  in  silver  or  in  the  number  of 
ounces  of  gold  for  which  it  would  exchange.  And  if  a  mer- 
chant in  Holland  has  purchased  from  a  resident  in  London 
goods  which  are  valued  in  English  money,  he  has  contracted 
to  pay  a  certain  number  of  ounces  of  gold  of  known  purity 
or  fineness. 

To  save  the  expence  of  the  freight  and  insurance  attend- 
ing the  exporting  and  importing  of  a  quantity  of  gold  to 
liquidate  these  debts,  it  suits  the  convenience  of  both  the 
parties,  after  agreeing  how  much  money  of  the  one  country  is 
equivalent,  considering  its  weight,  purity,  &c.,  to  that  of  the 
other,  and  which  is  called  the  par  of  exchange,  to  make  a 
transfer  by  means  of  a  bill,  which  is  done  by  my  paying  to 


The  Pbice  of  Gold  13 

the  English  merchant  the  sum  which  I  am  indebted  to  my 
Correspondent  in  Holland,  the  English  merchant  ordering  his 
Correspondent  in  Holland  to  pay  to  mine  the  same  amount, 
estimated  at  the  rate  of  exchange  agreed  on,  in  Dutch  money. 
The  advantage  to  both  parties  is  saving  freight  and  insur- 
ance. Now  if  two  or  more  parties  had  been  indebted  to  mer- 
chants in  Holland,  there  would  have  been  a  competition  be- 
tween them  for  the  purchase  of  this  bill,  and  the  seller  would 
no  longer  have  been  satisfied  with  saving  the  freight  and 
insurance  on  the  importation  of  his  gold,  but  would  have 
exported,  and  would  have  obtained  a  premium  for  his  bill, 
which  it  would  have  been  the  interest  of  either  of  the  other 
parties  to  have  given  him,  provided  such  premium  did  not 
exceed  the  expence  of  the  transport  of  the  metals.  It  is 
necessarily  kept  within  that  limit,  for  either  would  say,  "  the 
number  of  ounces  of  gold  which  I  owe  in  Holland  are  ready 
to  pay  my  debt.  I  am  willing  to  give  them  to  you  to  pay  it 
for  me,  and  to  add  to  it  the  expences  which  would  attend  the 
sending  it;  but  nothing  can  induce  me  to  give  more,  as  if 
you  do  not  accept  my  offer,  I  shall  suffer  no  further  disad- 
vantage by  sending  the  gold !  " — This  is  therefore  the  natural 
limit  to  the  fall  of  the  exchange,  it  can  never  fall  more  below 
par  than  these  expences;  nor  can  it  ever  rise  more  above  par 
than  the  same  amount. 

But  since  the  restriction  on  the  Bank  paying  in  specie, 
the  fall  of  the  exchange  has  kept  pace  with  the  rise  in  gold, 
and  is  now  considerably  lower  than  the  limits  which  I  have 
pointed  out,  and  which  may  be  accounted  for  in  the  following 
manner : — 

A  merchant  can  no  longer  say,  that  he  is  possessed  of  a  suffi- 
cient number  of  ounces  of  gold  to  send  abroad  to  pay  his  debt; 
he  may  say,  indeed,  that  he  has  a  sufficient  number  of  bank 
notes,  which  if  he  could  sell  at  par,  or  exchange  at  the  Bank 
for  what  they  profess  to  be,  viz.  an  ounce  of  gold  for  every 
31.  17s.  lO^d.  he  would  have  sufficient  gold  to  pay  his  debt; 
but  as  things  are,  he  must  either  sell  his  bank  notes  and  be 
contented  to  obtain  an  ounce  of  gold,  or  31.  17s.  lO^d.  for 


14  David  Ricaedo 

every  41.  13s.  of  notes,  or  agree  to  make  an  allowance  at  that 
rate  to  the  person  with  whom  he  negociates  his  bill.  Thus 
then  it  appears,  that  the  exchange  may  not  only  fall  to  the 
limits  which  I  have  before  mentioned,  but  also  in  an  inverse 
proportion  to  the  rise  of  gold,  or  rather  the  discount  of  bank 
notes.  But  these  are  the  limits  within  which  it  is  even  now 
confined.  It  cannot  on  the  one  hand  rise  more  above  par 
than  the  expence  of  freight,  &c.  on  the  importation  of  gold, 
nor  on  the  other  fall  more  than  the  expences  of  freight,  &c. 
on  its  exportation,  added  to  the  discoimt  on  bank  notes. 

If  bills  of  exchange  were  payable  in  gold  and  not  in  bank 
notes,  the  restriction  on  the  Bank  from  paying  in  specie,  could 
not  in  any  way  affect  the  exchange  beyond  the  limits  which 
I  before  specified. 

What  becomes  then  of  the  argument  which  has  so  often 
been  urged  in  Parliament,  that  whilst  the  rate  of  exchange 
continued  against  us,  it  would  not  be  safe  for  the  Bank  to 
pay  in  specie,  when  it  is  evident  that  their  not  paying  in 
specie  is  the  cause  of  the  present  low  exchange. 

Let  the  Bank  be  enjoined  by  Parliament  gradually  to  with- 
draw to  the  amount  of  two  or  three  millions  of  their  notes  from 
circulation,  without  obliging  them,  in  the  first  instance,  to  pay 
in  specie,  and  we  should  very  soon  find  that  the  market  price 
of  gold  would  fall  to  its  mint  price  of  31.  17s.  lO^d.  that 
every  commodity  would  experience  a  similar  reduction;  and 
that  the  exchange  with  foreign  countries  would  be  confined 
within  the  limits  above  mentioned. 

It  would  then  be  evident  that  all  the  evils  in  our  currency 
were  owing  to  the  over-issues  of  the  Bank,  to  the  dangerous 
power  with  which  it  was  entrusted  of  diminishing  at  its  will, 
the  value  of  every  monied  man's  property,  and  by  enhancing 
the  price  of  provisions,  and  every  necessary  of  life,  injuring 
the  public  annuitant,  and  all  those  persons  whose  incomes  were 
fixed,  and  who  were  consequently  not  enabled  to  shift  any 
part  of  the  burden  from  their  own  shoulders. 


The  Peice  of  Gold  15 

II* 

[The  Morning  Chronicle,  September  20,  1809] 
To  the  EDITOR  of  the  mobning  chkonicle. 

SIR. 

In  the  observations  which  I  made  on  the  high  price  of 
gold  in  the  Morning  Chronicle  of  the  29th  ultimo,  I  ex- 
pressed my  apprehensions  of  the  serious  consequences  which 
might  attend  the  increasing  depreciation  of  paper.  By  les- 
sening the  value  of  the  property  of  so  many  persons,  and  that 
in  any  degree  they  pleased,  it  appeared  to  me  that  the  Bank 
might  involve  many  thousands  in  ruin.  I  wished,  therefore, 
to  call  the  attention  of  the  public  to  the  very  dangerous  power 
with  which  that  body  was  entrusted;  but  I  did  not  appre- 
hend, any  more  than  your  Correspondent,  under  the  signature 
of  "A  Friend  to  Bank  Notes,"  that  the  issues  of  the  Bank 
would  involve  us  in  the  dangers  of  a  national  bankruptcy. 

Allowing  to  this  writer,  that  the  demand  for  gold  has  in- 
creased, whilst  the  usual  supplies  have  been  withheld,  I  am 
not  convinced  by  any  arguments  which  he  has  advanced,  that 
the  market  price  of  gold  could  have  been  thereby  affected, 
unless  the  medium  in  which  the  price  was  estimated  was 
depreciated.  That  the  scarcity  of  gold  should  increase  its 
value  cannot  be  doubted;  that  it  would  in  consequence,  when 
exchanged  for  other  commodities,  command  an  increased 
quantity  of  them,  is  as  ceri;ain ;  but  no  scarcity,  however  great, 
can  raise  the  market  price  much  above  the  mint  price,  unless 
it  be  measured  by  a  depreciated  currency. 

A  pound  of  gold  is  coined  into  fori;y-four  guineas  and  a  half, 
or  461.  14s.  6d.  This  is,  therefore,  the  mint  price,  and  cannot 
be  called,  as  your  Correspondent  calls  it,  an  arbitrary  value. 
It  is  the  simple  declaration  of  a  fact,  tbat  fort;y-four  guineas 
and  a  half  are  of  the  same  weight  as  a  pound  of  gold,  and 
one-twelfth  of  that  quantity  or  31.  178.  lO^d.  of  an  ounce. 

Experience  has  proved  to  us,  and  pari;icularly  that  of  the 
twenty  years  preceding  1797,  during  the  vicissitudes  of  war 


16  David  Ricaedo 

and  peace,  of  favorable  and  unfavorable  trade,  that  461. 
14s.  6d.  or  a  mint  pound,  would  purchase  sometimes  a  little 
more,  and  sometimes  a  little  less  than  a  pound  of  uncoined 
gold;  and  whilst  an  equal  amount  of  bank  notes  would  do 
the  same,  they  would  not  be  said  to  be  depreciated.  This 
they  always  did  previous  to  the  restriction  on  the  Bank  paying 
in  specie,  and  for  some  time  after  it.  Will  this  writer  explain 
to  us  why  any  demand,  however  great,  should  induce  any  one 
to  give,  as  has  been  lately  done,  551.  16s.  in  bank  notes,  for  a 
pound  of  gold,  if  they  are  of  equal  value  with  551.  16s.  in  coin? 
Does  he  reflect  that  the  gold  actually  contained  in  551.  168. 
weighs  one  pound  and  a  fifth  of  a  pound?  Is  it  seriously 
believed  that  he  would  give  this  for  a  pound  ?  If  it  is  agreed 
that  he  would  not,  then  is  the  fact  of  the  depreciation  of  bank 
notes  fully  established.  If  for  the  purchase  of  gold  a  greater 
quantity  of  com,  hardware,  or  any  other  commodity,  were 
given  than  usual,  it  ftiight  justly  be  said  that  the  scarcity  of 
gold  had  increased  in  value.  But  what  is  the  fact?  If  I  go 
to  market  with  com  or  hardware,  I  can  purchase  551.  168.  in 
bank  notes  with  precisely  the  same  quantity  that  I  am  obliged 
to  give  to  procure  a  pound  of  gold,  or  461.  14s.  6d. 

I  do  not  dispute  with  this  writer  but  that  it  may  be  advan- 
tageous to  a  foreigner  to  send  his  goods  to  London,  and  after 
selling  them  for  25s.  give  that  sum  for  the  purchase  of  a 
guinea.  He  may  possibly  be  doing  it  now  with  profit  to  him- 
self. But  he  would  not  give  twenty-five  shillings  for  a  guinea, 
if  he  did  not  pay  for  it  in  a  depreciated  medium.  Again,  1 
ask,  does  he  think  it  possible  that  he  would  give  a  guinea  and 
four  shillings  for  a  guinea,  or  bank  notes  to  that  amount,  if 
they  were  exchangeable  for  that  sum? 

From  the  observations  of  this  writer  we  should  be  led  to 
suppose,  that  gold  being  at  a  higher  price  on  the  Continent 
than  it  is  here,  we  might  obtain  there  for  it  41.  15s.  or  more 
per  ounce ;  but  we  should  be  mistaken  in  forming  such  a  con- 
clusion. It  is  paid  for  there  in  a  medium  not  depreciated, 
and  is  probably  somewhere  about  41.  per  ounce.  But  a  pur- 
chaser here  at  41.  lOs.  can  afford  to  sell  it  there  at  that  price; 
because  by  means  of  the  low  exchange,  (caused  by  the  depre- 


The  Pbice  of  Gold  17 

elation),  he  can  reimburse  himself  for  the  depreciation  of 
15  or  20  per  cent,  to  which  our  currency  has  arrived. 

It  is  contended,  too,  that  all  the  effects  on  the  Exchange, 
"  which  I  attribute  to  the  issue  of  bank  notes,  would  equally 
be  felt  if  there  were  not  a  single  bank  note  in  circulation." 

If  our  circulation  were  wholly  carried  on  by  specie,  I  believe 
it  would  be  difficult  for  this  writer  to  convince  us,  that  the 
exchange  might  be  20  per  cent,  against  us.  What  could  induce 
any  person  owing  1001.  in  Hamburgh,  to  buy  a  bill  here  for 
that  sum,  giving  1201.  for  it,  when  the  charges  attending  the 
exportation  of  the  1001.  to  pay  his  debt  could  not  exceed 
41.  or  51.  ? 

The  severity  of  the  law  against  the  exportation  of  gold  coin, 
prevents  any  one  from  openly  selling  bank-notes  at  a  discount, 
not  from  any  delicacy,  as  your  correspondent  supposes  me  to 
say,  against  doing  an  immoral  or  an  unlawful  act,  but  from 
the  fear  that  as  it  is  known  that  no  one  can  purchase  guineas 
but  with  a  view  to  exportation,  he  would  become  an  object  of 
suspicion, — he  would  be  watched  and  unable  to  effect  his  pur- 
pose. Repeal  the  law,  and  what  can  prevent  an  ounce  of 
standard  gold  in  guineas  from  selling  at  as  good  a  price  as  an 
ounce  of  Portugal  coin,  when  it  is  known  to  be  rather  superior 
to  it  in  purity  ?  And  if  an  ounce  of  standard  gold,  in  guineas, 
would  sell  in  the  market  (as  Portugal  coin  has  lately  done) 
at  41.  13s.  per  oz.  how  long  would  a  shopkeeper  sell  his  goods 
at  the  same  price  either  for  gold  or  bank-notes  indifferently? 
The  penalties  of  the  law,  therefore,  have  degraded  the  few 
guineas  in  circulation  to  the  value  of  the  bank-notes,  but  send 
them  abroad  and  they  will  purchase  exactly  what  an  equal 
quantity  of  Portugal  coin  will. 

This  is  the  temptation  to  their  exportation,  and  operates 
the  same  as  a  demand  from  abroad.  Our  currency  is  already 
superfluous,  and  it  is  worse  than  useless  to  retain  the  guineas 
here.  But  diminish  the  currency  by  calling  in  the  excess  of 
bank-notes : — Make  a  partial  void,  as  your  correspondent 
justly  observes  was  done  in  France  and  other  countries,  from 
the  annihilation  of  their  paper-credit,  and  what  can  prevent 
the  effectual  demand  which  would  thereby  be  immediately 


18  David  Ricardo 

created,  from  producing  an  importation  of  gold,  and  conse- 
quently a  favorable  exchange? 

If  our  circulating  medium  has  been  augmented  a  fifth,  till 
that  fifth  be  withdrawn  the  prices  of  gold  and  commodities 
will  remain  as  they  are.  Increase  the  quantity  of  notes,  they 
will  rise  still  higher;  but  withdraw  the  fifth,  as  I  earnestly 
recommend,  and  gold  and  every  other  commodity  will  find  its 
just  level,  and  whilst  the  Bank  continues  to  possess  the  con- 
fidence of  the  public,  the  representative  of  an  ounce  of  gold, 
or  31.  17s.  lO^d.  in  bank-notes  will  always  purchase  an  ounce 
of  gold. 

The  hint  thrown  out  of  altering  the  mint  price  to  the  mar- 
ket price  of  gold,  or,  in  other  words,  declaring  that  31.  17s. 
lO^d.  in  coin,  shall  pass  for  41.  13s.  besides  its  shocking  injus- 
tice would  only  aggravate  the  evil  of  which  I  complain.  This 
violent  remedy  would  raise  the  market  price  of  gold  20  per 
cent,  above  the  new  mint  price,  and  would  further  lower  the 
value  of  bank-notes  in  the  same  proportion. 

It  has  been  shewn  incontrovertibly  by  that  able  Writer,  Dr. 
Adam  Smith,  that  the  rate  of  interest  for  money  is  regulated 
by  the  rate  of  profits  on  that  part  of  capital  only  which  does 
not  consist  of  circulating  medium,  and  that  those  profits  are 
not  regulated  but  are  wholly  independent  of  the  greater  or 
lesser  quantity  of  money  which  may  be  employed  for  the  pur- 
poses of  circulation;  that  the  increase  of  circulating  medium 
will  increase  the  prices  of  all  commodities,  but  will  not  lower 
the  rate  of  interest. 

We  must  not,  therefore,  depend  upon  the  criterion,  namely, 
the  rate  of  interest  so  strongly  recommended  by  your  corres- 
pondent, by  which  to  judge  of  the  issues  of  the  Bank;  be- 
cause, if  Dr.  Smith's  reasoning  be  correct,  if  our  circulating 
medium  were  ten  times  as  great  as  it  is,  the  rate  of  interest 
would  not  be  permanently  affected. 

I  think.  Sir,  I  have  succeeded  in  proving  that  my  alarms  are 
not  altogether  groundless,  and  that  there  does  exist  a  great 
depreciation  in  our  currency,  affecting  the  interests  of  the 
public  annuitant,  and  of  those  whose  property  consists  in 
money,  without   any   corresponding  advantages.     The   evils 


The  Pbice  op  Gold  19 

attending  a  variable  medium,  as  it  affects  all  contracts,  are 
too  obvious  to  require  to  be  noticed.  The  permanency  of  the 
value  of  the  precious  metals  first  recommended  them  as  the 
general  medium  of  exchange.  That  advantage  is  now  lost 
to  us,  and  we  cannot  consider  our  currency  on  a  solid  founda- 
tion till  it  be  restored  to  the  value  of  that  of  other  countries. 

By  withdrawing  a  certain  quantity  of  Bank  of  England 
notes  from  circulation  it  is  supposed,  by  Mr.  Cobbett,  that 
their  place  would  be  immediately  supplied  by  country  bank- 
notes.* No  such  effect  would,  in  my  opinion,  take  place;  on 
the  contrary,  I  think  such  a  measure  would  oblige  the  country- 
banks  to  call  in  at  least  as  many,  if  not  considerably  more,  of 
their  notes. 

A  Bank  of  England  note  and  a  country  bank  note  are  now 
of  equal  value,  and  their  quantities  are  proportioned  to  the 
business  which  they  have  to  perform.  By  withdrawing 
Bank  of  England  notes  from  circulation  you  increase  their 
value  and  lower  the  prices  of  commodities  in  those  places 
where  they  are  current.  A  Bank  of  England  note  will  then  be 
more  valuable  than  a  country  bank-note,  because  it  will  be 
wanted  to  purchase  in  the  cheaper  market ;  and  as  the  country 
bank  is  obliged  to  give  Bank  of  England  notes  in  exchange  for 
their  own,  they  would  be  called  upon  for  them  till  the  quan- 
tity of  country  paper  should  be  reduced  to  the  same  propor- 
tion which  it  before  bore  to  the  London  paper,  producing  a 
corresponding  fall  of  the  prices  of  all  commodities  for  which 
it  was  exchangeable. 

A  writer  in  The  Pilot  newspaper  has  been  pleased  to  sup- 
pose, that  a  gentleman  who  has  written  in  your  paper  under 
the  signature  of  "  Mercator,"  has  done  so  "  in  aid  or  in  imita- 
tion of,  or  in  conjunction  and  conspiracy  with  me."  The 
fact  can  of  itself  be  of  little  importance.  If  his  arguments 
or  mine  or  weak,  let  him  shew  them  to  be  so;  but  "  No  Traf- 
ficker "  is  mistaken. — The  sentiments  of  "  Mercator  "  are  only 
known  to  me  as  they  are  to  him,  through  the  medium  of  The 
Morning  Chronicle.*  I  am  Sir,  &c. 

R. 


The  Price  op  Gold  21 


III 
IThe  Morning    Chronicle,   Norember   23,    1809] 

To  the  EDiTOE  of  the  mobning  cheonicle. 
SIR, 

Had  your  Correspondent,  "A  Friend  to  Bank-notes," 
when  he  first  did  nie  the  honour  to  notice  my  observations  on 
the  high  price  of  Gold,  contended,  as  he  now  does,  that  Bank- 
notes were  the  representatives  of  Silver,  but  not  of  Gold  Coin, 
we  should  sooner  have  discovered  from  whence  the  difference 
of  our  opinions  on  the  subject  in  dispute  between  us  arose. 
I  should  then.  Sir,  have  spared  him  the  trouble  of  giving 
so  many  proofs  of  that  which  is  indisputable,  namely — that  if 
Silver  be  the  sole  measure  of  value,  Gold  being  at  J^l.  13s. 
per  oz.  is  not,  of  itself,  evidence  of  BanTc  notes  being  at  a  dis- 
count.  Indeed,  I  thought  that  in  the  following  observa- 
tions I  had  admitted  that  position ' — "  When  we  talk  of  a  high 
price  of  Gold,  it  can  have  no  meaning  if  estimated  in  Gold,  or 
in  Notes  which  are  immediately  exchangeable  for  Gold.  It 
might  be  high  estimated  in  Silver,  or  in  goods  of  all  kinds." 
It  was  evident  from  the  tenor  of  that  and  the  subsequent 
paper,  that  I  considered  Gold  Coin  as  the  standard  of  com- 
merce, and  by  it  estimated  the  depreciation  of  Bank-notes. 
I  had  no  reason  to  suppose  that  it  was  otherwise  considered 
by  your  Correspondent.  In  one  place  he  called  Bank-notes 
a  "  substitute  for  Gold;"  in  another  he  observes,  that  "  Had 
not  this  restriction  been  imposed,  the  great  and  growing  de- 
mand for  Gold  upon  the  Continent  would  have  drawn  every 
Guinea  out  of  the  Country,  and  would  have  left  us  without 
resource  in  any  emergency  which  might  arise,  by  which  its 
credit  would  be  shaken."  The  restriction  could  only  have 
enabled  the  Directors  of  the  Bank,  if  they  had  been  so  dis- 
posed, to  prevent  the  Guineas  locked  up  in  the  Bank  from 
being  exported.  Those  in  circulation  have  been  as  liable  to 
be  sent  out  by  the  Country  since,  as  before  that  measure.  But, 
if  Silver  only  be  the  standard  of  currency,  as  is  now  asserted, 


22  David  Ricabdo 

the  Bank  might  have  paid  their  Notes  in  our  present  debased 
Silver  Coin;  in  Shillings,  for  example,  debased  24  per  cent, 
below  their  standard  weight  and  value,  the  Guinea,  therefore, 
"would  not  have  needed  that  protection.  The  Silver  would 
not  have  been  demanded,  because  it  could  not  have  been 
either  melted  or  exported,  but  at  a  loss  of  24  per  cent.  If 
Silver  be  the  standard  of  currency.  Bank-notes  were,  in  1797, 
at  a  premium  of  24  per  cent,  and  are  now  at  a  premium  of  14 
per  cent. 

But  if,  as  I  shall  attempt  to  prove.  Gold  be  the  standard 
of  value,  and  consequently,  Bank  Notes  the  representatives 
of  the  Gold-coin,  I  do  expect  that  this  writer  will  agree  with 
me  that  Bank  Notes  are  at  a  discount,  and  that  the  excess 
of  the  market  above  the  mint  price  of  Gold  measures  the 
depreciation. 

The  price  of  standard  Silver  bullion  was  on  Tuesday  last 
5s.  9^d.  per  oz.  On  the  same  day,  the  price  of  standard  Gold 
bullion  was  41.  10s.  per  oz.  An  ounce  of  Gold  was  therefore 
equal  to  about  15^  oz.  and  not  18  oz.  of  Silver. 

If,  then,  we  estimate  the  value  of  Bank  Notes  by  the  price 
of  Gold  bullion,  they  will  be  found  to  be  15^  per  cent,  dis- 
count. If  by  the  price  of  Silver  bullion  12  per  cent,  discount. 
But  your  Correspondent  would  no  doubt  observe,  that  this 
conclusion  from  the  price  of  Silver  bullion  would  be  correct, 
if  our  Silver  currency  were  not  degraded  by  wearing  and  clip- 
ping, but  as  it  was  known  to  be  depreciated  by  being  deficient 
in  standard  weight,  the  high  price  of  Gold  bullion  might  in  a 
great  measure,  and  that  of  Silver  bullion  wholly,  be  caused  by 
that  deficiency.  Bank  Notes  are,  according  to  this  argument, 
the  representatives,  not  of  our  standard  Silver  currency,  but 
of  our  debased  Silver  Coins. 

It  is  observed  by  Lord  Liverpool,  in  his  letter  to  the  King 
on  the  state  of  the  coins,*  that  the  law  now  is,  and  has  been 
since  the  year  1774,  "  That  no  tender  in  payment  of  money 
made  in  the  Silver  Coin  of  this  realm,  of  any  sum  exceeding 
the  sum  of  251.  at  any  time,  shall  be  reputed  in  law  or 
allowed  to  be  legal  tender,  within  Great  Britain  or  Ireland, 


The  Pbice  of  Gold  23 

for  more  than  according  to  its  value  by  weight,  after  the  rate 
of  5s.  2d.  for  each  ounce  of  silver.'* 

Bank-notes  are  not  then  the  representatives  of  the  debased 
silver  coins.  A  holder  of  a  Bank-note  of  10001.  might  refuse 
to  take  more  than  251.  in  the  present  debased  Silver  currency. 
If  the  remaining  975  1.  were  paid  him  in  shillings,  he  would 
receive  them  by  weight,  at  their  Mint  value  of  Ss.  2d.  per  oz. 
which,  with  the  251.  of  debased  Silver,  when  sold  at  the 
present  price  of  Ss.  9^d.  per  oz.  would  yield  11101.  in  Bank- 
notes. Here  then  it  is  proved,  on  this  writer's  own  princi- 
ples, that  if  Silver  be  the  standard  currency,  Bank-notes  are 
at  a  discount  of  11  per  cent. 

For  the  following  reasons  given  by  Lord  Liverpool,  in  the 
work  before  mentioned,  I  consider  Gold  as  the  standard  meas- 
ure of  value.  He  observes,"  "that  the  Silver  Coins  are  no 
longer  the  principal  measure  of  property:  all  commodities 
now  take  their  price  or  value  in  reference  to  the  Gold  Coin, 
in  like  manner  as  they  took  their  value  in  a  former  period 
in  reference  to  the  Silver  Coins.  On  this  account  the  present 
deficiency  of  the  Silver  Coins,  great  as  it  is,  is  not  taken  into 
consideration,  in  paying  the  price  of  any  commodity,  to  the 
extent  in  which  they  are  legal  tenders.  It  is  clear,  therefore, 
that  the  Gold  Coins  are  now  become,  in  the  practice  and 
opinion  of  the  people,  the  principal  measure  of  property." 

He  then  states,'"  that  in  the  reign  of  William  the  Third, 
the  Guinea  was  current  at  even  so  high  a  value  as  SOs. ;  that 
the  Gold  Coins  rose  or  fell  as  the  Silver  Coins  were  more  or 
less  perfect.  "  No  such  increase  or  variation  in  the  value  of 
Gold  Coin  has  taken  place  since  the  year  1717,  when  the  rate 
or  value  of  the  Guinea  was  determined  by  proclamation,  and 
the  Mint  indenture,  to  be  21s.  and  the  other  Grold  Coins  in 
proportion;  though  the  Silver  Coins  now  current  have  long 
been,  and  are  still,  at  least  as  deficient  as  they  were  at  the 
beginning  of  the  reign  of  King  William.  The  Guinea  and 
other  Gold  Coins  have,  notwithstanding,  constantly  passed 
since  1717,  at  the  rate  or  value  given  them  by  the  Mint  in- 
dentures." 


24  David  Ricardo 

"  The  two  foregoing  reasons  clearly  prove  the  opinion  of 
the  people  of  Great  Britain  on  this  subject,  in  their  interior 
commerce  and  domestic  concerns.  I  will  in  the  next  place 
shew  what  has  been  the  opinion  of  foreign  nations  concern- 
ing it."  In  the  reign  of  King  William  the  exchanges  rose  or 
fell  according  to  the  perfection  or  defect  of  our  silver  coins. 
Before  the  recoinage  in  1695,  the  exchanges  with  all  foreign 
countries  were  4s.  in  the  pound  against  England,  and  with 
some  of  them  considerably  more.  '"The  same  evil,  however, 
has  never  existed  since  the  year  1717,  though  our  silver 
coins  have,  during  all  this  interval,  been  very  defective.  But, 
on  the  other  hand,  our  exchanges  with  foreign  countries  were 
very  much  influenced  to  our  disadvantage,  when  our  gold  coins 
were  defective,  that  is,  previous  to  the  reformation  of  our 
Gold  Coins  in  the  year  1774."  Lord  Liverpool  considers  this 
as  a  proof  that  foreigners  consider  our  Gold  Coins  as  the  prin- 
cipal measure  of  property.  Another  argument  is  drawn  from 
the  prices  of  gold  and  silver  bullion.  When  our  Gold  Coin 
was  defective  previous  to  the  re-coinage  in  1774,  gold  bullion 
advanced  considerably  above  its  mint  value,  but  immediately 
on  its  being  brought  to  its  present  state  of  perfection,  gold 
bullion  fell  to  something  under  the  mint  price,  and  has  con- 
tinued so  for  twenty  years  previous  to  1797.  "  It  is  evident, 
therefore,  from  these  facts,  that  the  price  of  gold  bullion  was 
affected  by  the  state  of  our  gold  coins,  though  the  price  of 
this  bullion  had  not  since  the  year  1717,  been  so  affected  by 
the  defective  state  or  condition  of  our  silver  coins."  The 
price  of  silver  bullion  has,  since  the  year  1717,  been  affected 
by  the  perfection  or  defect  of  our  Gold  Coins,  but  has  not 
been  so  by  the  defective  state  of  our  Silver  Coins. — "  From 
all  which  it  is  evident,  that  the  value  of  Gold  or  Silver  Bullion 
has,  for  40  years  at  least,  been  estimated  according  to  the 
state  of  our  Gold  Coin  solely,  and  not  according  to  that  of 
Silver  Coin.  The  price  of  both  these  metals  rose  when  our 
Gold  Coin  was  defective;  it  fell  when  our  Gold  Coin  was 
brought  to  its  present  state  of  perfection;  and  it  may,  there- 
fore, justly  be  inferred,  that,  in  the  opinion  of  the  dealers  in 


The  Pbice  of  Gold  25 

the  precious  metals  (who  may  be  considered  as  the  best 
judges  on  a  subject  of  this  nature),  the  gold  coin  has  in  this 
respect  become  the  principal  measure  of  property,  and  conse- 
quently the  instrument  of  commerce."  In  another  passage. 
Lord  Liverpool  considers  a  pound  sterling  to  be  20-21  of  a 
guinea."  The  same  opinion  is  advanced  by  Sir  J.  Stewart" — 
•'  At  present  (says  he)  there  are  no  sterling  pounds  in  silver 
money;  there  is  no  silver  in  England  in  any  proportion  to 
the  circulation  of  trade ;  and,  therefore,  the  only  currency  by 
which  a  pound  can  be  valued  is  the  guinea." 

The  Bank-Directors  must  have  been  of  the  same  opinion, 
when  they  stated  in  their  evidence  before  Parliament,  that  it 
was  their  usual  practice  to  limit  the  amount  of  their  notes 
when  the  market  price  of  gold  exceeded  the  mint  price." 

In  the  Eeport  of  the  Committee  of  the  House  of  Lords  in 
1797,  it  is  observed,  that  "  Gold  is  the  mercantile  coin  of  Great 
Britain,  and  silver  has  for  many  years  been  only  a  commodity, 
which  has  no  fixed  price,  and  is  very  rarely  carried  to  the 
Mint  to  be  coined,  but  varies  according  to  the  demand  for  it 
at  the  market."  " 

I  am.  Sir,  your  obedient  Servant, 

R. 

Nov.  4 


NOTES 

Mpage  4)  "  Intbodcjction. — The  writer  of  the  following  pages 
has  already  submitted  some  reflections  to  the  attention  of  the 
public,  on  the  subject  of  paper-currency,  through  the  medium  of 
the  Morning  Chronicle.  He  has  thought  proper  to  republish  his 
sentiments  on  this  question  in  a  form  more  calculated  to  bring 
it  to  fair  discussion;  and  his  reasons  for  so  doing,  are,  that  he 
has  seen,  with  the  greatest  alarm,  the  progressive  depreciation  of 
the  paper-currency.  His  fears  have  been  augmented  b»  observing;, 
that  by  a  great  part  of  the  public  this  depreciation  is  altogether 
denied,  and  that  by  others,  who  admit  the  fact,  it  is  imputed  to 
any  cause  but  to  that  which  to  him  appears  the  real  one.  Before 
any  remedy  can  be  successfully  applied  to  an  evil  of  such  mag- 
nitude, it  is  essential  that  there  should  be  no  doubt  as  to  its 
cause.  The  writer  proposes,  from  the  admitted  principles  of 
political  economy,  to  advance  reasons,  which,  in  his  opinion,  prove, 
that  the  paper  currency  of  this  country  has  long  been,  and  now 
is,  at  a  considerable  discount,  proceeding  from  a  superabundance 
in  its  quantity,  and  not  from  any  want  of  confidence  in  the  Bank 
of  England,  or  from  any  doubts  of  their  ability  to  fulfil  their 
engagements.  He  does  this  without  reluctance,  being  fully  per- 
suaded that  the  country  is  yet  in  possession  of  the  means  of  restor- 
ing the  paper  currency  to  its  professed  value,  viz.  the  value  of 
the  coins,  for  the  payment  of  which  it  purports  to  be  a  pledge. 

He  is  aware  that  he  can  add  but  little  to  the  arguments  which 
have  been  so  ably  urged  by  Lord  King,  and  which  ought  long 
before  this  to  have  carried  conviction  to  every  mind;  but  he  trusts, 
that  as  the  evil  has  become  more  glaring,  the  public  will  not 
continue  to  view,  without  interest,  a  subject  which  yields  to  no 
other  in  importance,  and  in  which  the  general  welfare  is  so 
materially  concerned. 

Dec.  1,  1809." 

See  "  The  High  Price  of  Bullion,  a  Proof  of  the  Depreciation  of 
Bank  Notes"  (Second  edition,  corrected.    London:  1810),  ill,  iv. 

Mpage  15)  Ricardo's  first  communication  (August  29)  was 
followed  by  a  letter  from  "  Mercator,"  dated  September  4  and 
published  In  The  Morning  Chronicle  of  September  7,  in  which 
Ricardo's  views  were  warmly  and  somewhat  sophomorically 
defended.  As  remedial  measures,  the  partial  resumption  of 
specie  payments  and  the  limitation  of  the  Bank's  note-issuing 
power  were  urged.  In  The  Pilot,  also  a  London  newspaper,  of 
September  7,  "  F."  explained  the  high  price  of  gold  as  due  to 
extraordinary  demand.  In  the  same  paper  of  September  8, 
"  Mercator  "  charged  that  the  high  price  of  gold  was  due  to  the 
extensive  purchase  of  guineas  for  export,  in  which  illicit  traffic 
"  Mercator  "  was  doubtless  a  participant!  "  Mercator  "  replied 
to  these  two  critics  with  some  vigor  in  the  Chronicle  of  Septem- 
ber 12,  and  dwelt  upon  the  injury  done  the  "  public  annuitant  or 
person  of  fixed  stipend  "  by  the  rise  in  prices.    "  No  Trafficker  " 


28  Notes 

retorted  in  The  Pilot  of  September  13  in  a  rambling,  unpleasant 
letter  which  added  nothing  to  his  first  statement. 

A  more  important  contribution  appeared  in  the  Chronicle  of 
September  14,  over  the  signature  "  A  Friend  to  Bank  Notes  but 
no  Bank  Director  " — from  the  pen,  as  we  now  know,  of  Hutches 
Trower.  Trower  protested  against  the  alarmist  note  which  he 
found  in  Ricardo's  communication.  He  ascribed  the  high  price 
of  gold  to  increased  demand,  consequent  upon  the  collapse  of 
the  French  assignats  and  to  diminished  supply,  resultant  from 
interrupted  trade  with  America.  The  Bank's  issues,  instead  of 
heightening  the  price  of  bullion,  had  actually  checked  it  by 
serving  to  that  extent  as  a  substitute  for  gold.  Ricardo's  brief 
explanation  of  the  failure  of  guineas  to  command  more  goods 
in  ordinary  purchases  than  bank  notes  was  sharply  criticised. 
The  possibility  was  considered  of  reducing  the  standard  price  of 
gold  to  a  price  nearer  its  market  price  so  as  to  prevent  an  other- 
wise inevitable  efflux  of  gold  whenever  specie  payment  should  be 
resumed.  Finally,  it  was  asserted  that  the  rate  of  interest  was  to 
be  regarded  as  the  real  index  of  the  redundancy  or  otherwise  of 
the  money  supply. 

This  communication  was  the  immediate  occasion  of  Ricardo's 
Chronicle  letter  of  September  20.  Cf.  "  Letters  of  David  Ricardo 
to  Hutches  Trower  and  others,  1811-1823  "  (ed.  Bonar  and  Hol- 
lander.    Oxford:  1899),  vi-vii. 

"(page  18)  "Wealth  of  Nations,"  bk.  II,  ch.  iv;  in  Thorold 
Rogers'  edition,  vol.  I,  pp.  357-359. 

*(page  19)  Cf.  Cobbett's  Political  Register  of  September  16, 
1809.  In  a  paper  on  "  Jacobin  Guineas,"  Cobbett  refers  to  "  The 
philosopher  who  writes  in  the  Chronicle,"  and  asks,  "  Besides 
does  this  writer  imagine,  that  the  country-bankers  would  not 
make  money  to  supply  the  place  of  any  reduction  at  the  Bank  of 
England?" 

"(page  19)  The  opening  phrase  of  the  letter  of  "  No  Trafficker," 
published  in  The  Pilot  of  September  13  is,  "  A  gentleman  who  has 
written  in  The  Morning  Chronicle  under  the  signature  of 
Mebcatob,  in  aid  or  imitation  of,  or  in  conjunction  or  conspiracy 
with  another  writer  in  the  same  paper  upon  the  subject  of  the 
present  high  price  of  gold,"  etc.     Cf.  note  2,  above. 

'(page  21)  The  publication  of  Ricardo's  second  contribution 
stimulated  further  controversy  in  the  columns  of  the  Chronicle. 
On  September  23  "  A  Lover  of  Cash "  invited  an  expression  of 
opinion  from  "A  Friend  to  Bank  Notes"  (Hutches  Trower)  as 
to  whether  general  prices  had  risen  proportionately  with  the 
increased  note  circulation.  In  the  same  issue  "  T."  praised  the 
"  clear  and  convincing  statement  from  your  intelligent  corres- 
pondent R.,"  described  the  attempt  to  account  for  the  high  price 
of  gold  by  any  other  cause  than  the  depreciation  of  paper  as 
"  downright  nonsense  and  infatuation,"  and  agreed  with  Ricardo, 
as  against  Cobbett,  that  the  increased  issues  of  the  country  banks 
resulted  from  the  conduct  of  the  Bank  of  England.  On  Septem- 
ber 26,  "  A.  Z."  denied  that  notes  were  at  a  discount,  emphasized 


Notes  29 

the  absence  of  dual  prices,  asserted  that  gold  coin  and  not  gold 
bullion  was  the  standard  of  value,  and  explained  the  excess  of 
the  market  above  the  mint  price  of  gold  as  the  measure  of  unwil- 
lingness to  violate  the  law  by  melting  down  guineas.  "  Mercator  " 
was  heard  from  again  on  September  29,  with  a  repetition  of 
earlier  arguments  and  an  even  more  emphatic  support  of 
Ricardo's  views :  "  I  cannot  help  reverting  to  the  statements  of 
your  original  correspondent  on  29th  last,  considering  his  alarms 
not  imaginary  but  real,  his  positions  well  founded,  his  arguments 
unanswered,  and  his  deductions  incontrovertible."  On  October 
10  appeared  a  well-written  reply,  signed  "  L.,"  to  the  communi- 
cation of  "A.  Z."  (September  26),  in  which  the  striking  fact  that 
as  many  commodities  could  be  bought  for  21  shillings  in  paper 
as  for  a  guinea  in  gold  was  explained  as  due  partly  to  the  ille- 
gality of  melting  guineas  (Ricardo's  argument)  and  partly  to 
the  legal  tender  quality  of  the  notes.  Attention  was  called  to  the 
increasing  profits  of  the  Bank  and  to  the  rise  in  the  value  of 
Bank  stock  during  the  Restriction. 

On  October  30  Hutches  Trower,  writing  under  the  same  pseu- 
donym, "  A  Friend  to  Bank  Notes  but  no  Bank  Director,"  made 
lengthy  but  unfortunate  reply  to  Ricardo's  letter  of  September  20. 
He  withdrew  his  proposal  of  an  alteration  in  the  standard  and 
did  not  press  his  earlier  suggestion  that  the  rate  of  interest  wats 
an  index  of  the  value  of  money,  but  practically  rested  his  entire 
case  on  the  contention  that  silver  was  the  standard  measure  of 
value:  "  It  now,  therefore,  either  remains  for  this  writer  [Ricardo] 
either  to  show  that  silver  is  not  the  medium  in  which  the  value 
of  gold  is  estimated  (that  is  to  say,  that  it  is  not  the  only  meas- 
ure of  value),  or,  that  being  that  medium,  it  is  not  depreciated; 
or  to  admit,  that  the  high  market  price  of  gold  is  the  effect  of 
an  increased  demand.  From  which  admission  it  will  necessarily 
follow  that  that  nigh  price  is  no  proof  that  Bank  notes  are  at 
a  discount.  Should  he  find  himself  obliged  to  embrace  this  latter 
alternative,  then  will  there  be  an  end  of  the  question  between  us." 

On  November  3,  "  L."  urged  that  the  Bank  circulation  be 
reduced  to  the  amount  of  notes  outstanding  in  1797,  and  on 
November  22  "  W.  S."  called  attention  to  attempts  then  being 
made  to  force  inconvertible  county  bank  notes  into  circulation  in 
London.  Ricardo's  third  contribution  appeared  on  November  23 
and  terminated  this  phase  of  the  controversy. 

'(page  21)     See  page  10,  above. 

*(page  22)  "A  Treatise  on  the  Coins  of  the  Realm;  in  a  Letter 
to  the  King"  (Oxford,  1805),  p.  129.  This  and  other  passages 
cited  contain  minor  verbal  and  typographical  Inaccuracies. 

•(page  23)  Ibid.,  p.  141.  In  Lord  Liverpool's  text,  after  the 
words  "  in  reference  to  the  Gold  Coins,"  follows  a  clause  here 
omitted,  viz.,  "  that  if,  in  reference  to  the  quantity  of  Gold  Coins, 
for  which  they  could  be  exchanged;  " 


"(page  23)     Ibid.,  pp.  141-145. 
"(page  25)     Ibid.,  p.  153. 


Ji67417 


30  Notes 


"(page  25)  "An  Inquiry  into  the  Principles  of  Political  Oecon- 
onay"  (London,  1767),  vol.  II,  p.  89;  in  the  collected  "Works, 
Political,  Metaphysical  and  Chronological"  (London,  1805),  vol. 
Ill,  p.  120. 

"(page  25)  Doubtless  based  upon  the  statement  of  Henry 
Thornton  in  "  An  Enquiry  into  the  Nature  and  Effects  of  the 
Paper  Credit  of  Great  Britain"  (London,  1802),  p.  231-232:  "For, 
if  at  any  time  the  exchanges  of  the  country  became  so  unfavorable 
as  to  produce  a  material  excess  of  the  market  price  above  the 
mint  price  of  gold;  the  directors  of  the  bank,  as  appears  by  the 
evidence  of  some  of  their  body  given  to  parliament,  were  disposed 
to  resort  to  a  reduction  of  their  paper  as  a  means  of  diminishing 
or  removing  the  excess,  and  of  thus  providing  for  the  security 
of  their  establishment."  Cf.  Ricardo's  "  High  Price  of  Bullion  " 
(in  McCulloch's  edition  of  "Works,"  p.  276),  wherein  this  pas- 
sage is  cited  in  full. 

"(page  25)  "Report  of  the  Lords  Committees  appointed  a 
Secret  Committee  to  enquire  into  the  Causes  which  produced  the 
Order  of  Council  of  the  26th  of  February  1797,"  p.  261.  It  is  of 
curious  interest  that  the  copy  of  the  "  Report "  by  which  the 
above  citation  has  been  verified  (in  the  Library  of  Congress  in 
Washington,  D.  C.)  was  the  property  of  John  Pearse,  deputy  gov- 
ernor of  the  Bank  of  England  at  the  very  time  Ricardo  was  writ- 
ing, and  soon  after  its  governor. 


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